Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Sage Therapeutics Inc (NASDAQ:SAGE), with a market cap of US$5.8b, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at SAGE’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SAGE here.
Does SAGE face the risk of succumbing to its debt-load?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Sage Therapeutics, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with SAGE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does SAGE’s liquid assets cover its short-term commitments?
Since Sage Therapeutics doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at SAGE’s most recent US$48m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 23.45x. However, a ratio greater than 3x may be considered as quite high.
SAGE has no debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, though, some level of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure SAGE has company-specific issues impacting its capital structure decisions. You should continue to research Sage Therapeutics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SAGE’s future growth? Take a look at our free research report of analyst consensus for SAGE’s outlook.
- Valuation: What is SAGE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SAGE is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.